How Much Should I Spend On My New Apartment?

I’m moving to Halifax in January, and I’m very excited to be going back to living in a thriving urban centre. Of course, with that kind of activity comes higher rent prices, which meant that this month, with our January 1st deadline fast approaching, I needed to sit down with our budget and figure out exactly how much we could afford to spend on our new apartment. Unfortunately, this isn’t a straight forward task, and I needed to do a few calculations. Here’s how I figured out how much we should spend on our new apartment:

How Much Should I Spend On Housing

When it comes to deciding how much we could afford to spend on housing, I turned to the Canadian personal finance expert I trust the most: Gail Vaz Oxlade. Gail has been writing about money longer than I’ve been a fully formed adult and I trust her advice. A quick google searched told me that Gail says no more than 35% of your net income (that’s what you bring home) should go to housing costs, and this jives with what I’ve already learned.

The logic behind this rule of thumb is that by limiting the amount you spend on housing, you’ll be free to use your money for saving, debt repayment, car payments, etc. This also helps guard you against emergencies, because housing is not a variable expense that you can cut if you lose your job. Having your housing costs take up just 35% of your net income is a good way to guard against catastrophes.

The 35% housing rule is part of a balanced budget, which looks like this:

A typically balanced budget.

Setting My Housing Budget

Normally, setting your ideal housing budget would be as simple as taking your monthly net income and multiplying it by 35%. But our situation is unique and that calculation won’t work for us for a few reasons. First, my husband doesn’t have a job lined up in Halifax yet, so we don’t know what his net income is going to be, therefore we don’t know what our net income is going to be.

In place of his actual income, I’m going to use a worst-case scenario income, which is very very low for someone of his age and skill level. I’m doing this because I want to know that even if he needs to work somewhere less than ideal for a few months before a better job comes along, we’ll still be able to afford our apartment.

The second complication is that our budget doesn’t look like the one in the image above. First, there’s a section missing, and that’s debt, because we don’t have any. Debt makes up 15% of the budget above, and for us, that’s 15% of wiggle room in our budget. Second, our transportation budget is much smaller because our car is paid for, and we both have bicycles. Instead of paying 15% towards transportation like the chart above, (if I use worst-case scenario income for my husband) we’ll be paying closer to 7%. This frees up another 8% of wiggle room in our budget. That’s a total of 23% of our budget that we can reallocate to there categories.

Finding an Apartment We Can Live With

Normally, I’d send that extra wiggle room directly into the savings section of the budget pie chart above, but once I started looking at apartments in Halifax, it became clear to me that I might want to repurpose some of that wiggle room for housing instead. I had some criteria for our apartment, and the places that met that criteria were a little more expensive than 35% of our net worst-case-scenario income. It came down to a classic struggle between wanting to save money, and wanting to find a place we’d be happy to live in for the next 3-5 years while saving for a house down payment, and growing our careers (I’m so done with moving).

Last weekend we went to Halifax and looked at seven different apartments. There were some big, gorgeous and expensive ones, some small, dark and cheap ones, and in the end we found the goldilocks of apartments: a brand new, two-bedroom place in a decent neighbourhood that had just enough drawbacks to make it affordable for us. The final cost with all expenses included? 40% of our worst-case-scenario income.

It’s more than I would’ve liked to spend in a perfect world, but it’ll work for us right now. We can absolutely afford it while still making our retirement contributions and saving for other goals, so I don’t mind spending a little more than we technically should. I also didn’t include any freelance income in my calculations, so I’ll still have lots of side hustle cash coming in to make our savings goals for 2015 a reality.

We signed the lease this week, sent over our damage deposit, and have an official move-in date of January 1st! I’m so excited for this next chapter of our lives, especially now that this big hurdle is out of the way.

What percentage of your income do you spend on housing? I want to know!

Stay Up To Date

I think our housing costs are down to around 3.5% of our gross income since we paid off the mortgage. We still have condo fees (incl utilities), taxes and insurance to cover, but they are about half of what we would be spending on rent in a worse place.
Here’s hoping your spouse is able to land a job that’s a good fit in a few weeks.

it’s hard to do a direct calculation of my % because a huge chunk of my retirement savings comes off the top, and so my take home is not really all that accurate to what I am getting, if that makes sense. But it’s about 15% of gross, and somewhere in the 25-30% net range.

I’m glad you two were able to find a place that was newly done but with a few quirks. Don’t do what we’ve done. We’re in a cheapy apartment for the sake of it being “temporary” but that’s already lasted a year. It would be nice to make it feel like a home rather than a place we have our stuff.

I’ve gone the temporary route my entire adult life. First a furnished studio, then a 400 square foot cottage, now the 3-bedroom house. I’m sick of approaching my living situation as a temporary situation. I’m ready for a home! Unfortunately actual home ownership is out of the question so I’m happy to settle for a nice rental.

If you take my half of rent, utilities, apartment insurance and internet into the equation, I spend just more than 25% on my housing costs…

We got really lucky with out apartment in Toronto as we’re paying $150 less than the second-cheapest apartment we looked at. The top end of our budget was $250 more than we’re paying now, which would have put my housing expenses – for my half – at nearly 30%.

Thanks to the cheaper apartment, I can save nearly 39% of my monthly income.

Yah, for sure. But I totally agree with you that finding a good apartment to live in while you save for a downpayment is important. So, I can understand moving your budget up a bit and spending 40%. Hope you love your new home.

Thanks! Now that I see that everyone on here spends less than that, I’m feeling a little self conscious, but I’m confident I can negotiate raises and side income in the next year that’ll bring it down to 35%.

Don’t feel self-conscious! Remember that it’s all relative based on where you live, what you want out of a house, what your salary is, etc., etc. Your post clearly explains that you’re doing the right – and financially sound – thing for you. Being able to get it down to 35% in the next year or so is a nice bonus 🙂

Trista

My housing (includes rent, heat, lights, cable, internet and tenant’s insurance) is 31% of my net income (my pension is deducted from my gross pay so I do not include it in my percentages) for my full time job (I don’t included the income from my part time job as it is variable). I was lucky enough to find something rather cheap. I know it would make more financial sense to have a roommate but I’m turning 30 next month and having my own space and privacy is very important to me.

I have been thinking a lot about my fixed cost budget busters lately. I do have a two bedroom apartment. If I rented out the second bedroom I would save $400 a month. Also my transportation costs are high as I still have a car payment (total for loan, insurance and gas 21%). If my car was paid off I’d have another $320.

Decreasing fixed costs was definitely a key component of how I paid off so much debt so quickly, so I completely agree that it’s a good way to go if you’re looking to decrease your expenses. Good luck!

Trista

Yeah, but some things are worth more than money. Like a quiet, stress-free apartment. But I do think it might be worth a call to Scotiabank to see if I can change the terms of my auto-loan.

My housing costs this year have been about 24% of my net income, ignoring bonuses. That includes the mortgage payment, HOA dues, property taxes, condo insurance, electricity, and internet. When I bought this place, my housing costs were about 30% of my net income. Next year, my housing costs are going down to only 17% of my net income! I’m really excited for that. It’s a combination of my boyfriend moving in and my income going up with a new job.

Yup! My housing costs went from ~32% to ~38% of my net income for a few months in 2012 after an abrupt move. That definitely cut into my ability to save! (Wow, I completely forgot about how expensive those few months were.) Like you though, my car is paid off and I had no debt, so it wasn’t the end of the world. I got a big raise a few months later, dropping it to ~32% of my net and I was much happier. It was totally worth it for living close to work to spend that much!

Now I own a condo (bought in mid 2012), which stabilized my housing costs a lot since there’s no rent control here. Property taxes and HOA dues going up isn’t nearly as annoying as the $100-300/month+ rent increases year-over-year.

BudgetAndTheBees

This was a really hard process for us. My husband and I moved to New York City following his education. I didn’t have a job lined up, so deciding how much we could afford and balancing that with safety and proximity to his schooling location was a painstaking decision. I can definitely relate!

I think I currently pay just under 20% of my NET income on housing. It’s tiny, it’s got a lot of issues and there are no straight lines in the entire place, but it’ll keep us on track for savings for the next two or so years.

Wow Ellstar, that’s awesome! It’s good to see that since saving if your priority, you’re making the necessary sacrifices to get where you want to go.

Melissa

Paying off student loans this year meant that I needed low living expenses. My half of rent, cellphone, electricity and internet came to 19% of my yearly income. Our lease is up on January 30th. We’re currently trying to find someone to resign the lease with us for the next year. If we can’t I will be in the same situation you just had. How much can we afford?